Europe/Middle East

Theresa May has come into office talking about people who are “just managing”, but find life tough. Similarly, then Labour Party leader Ed Miliband talked about the squeezed middle in the build-up to last year’s general election.

The European Court of Justice upheld the principle of making creditors bear the burden for investment in banks that sour before government funds could be used. Italian banks are particularly sensitive to the ruling, which cannot be appealed because the European Banking Authority and European Central Bank stress tests on July 29 are expected to show that some Italian banks are under-capitalized.

After last Friday’s failed coup attempt in Turkey, a measure of calm has returned to global markets. We did not think Turkish developments have wide-reaching implications for EM assets, but we do remain very negative on Turkish assets in the wake of the coup and ongoing political uncertainty.

Philip Hammond, the UK’s new Chancellor of the Exchequer, has a lot on his plate. He faces a slowing economy urgently in need of stimulus. He confronts tough choices over public spending and will be under pressure to reverse the austerity policies of his predecessor. The question for Hammond is not whether to stimulate the economy, it is when and how.

The European Union, still nursing wounds from its crisis over the euro and “Grexit,” is facing a much more severe threat that strikes at the very heart of the EU’s legitimacy. In addition, the problem concerns the very measures put in place to resolve the earlier crisis, which nearly led to a Greece exit from the Eurozone.

The Tour de France is winding its way from the flat, windswept coast of northern France down through the Loire valley and the lumpy terrain of the Massif Central. So far, it has been a time for the bulky sprinters and the puncheurs who specialise in short, maximum efforts.

Sterling is continuing to move lower. It has tested the $1.3050 area in the North American morning, having been under pressure through the Asian session and the European morning. That the UK economy is slowing down, materially, as BOE Governor Carney said, is not really new news. Nor is the fact that the BOE reversed its previous decision to force banks to boost their capital buffers. This was anticipated last week.